Why Vonage is Just a Fad

[dave () farber net]

___

Dave Farber  +1 412 726 9889



...... Forwarded Message .......
From: Marc Aniballi <marcaniballi () hotmail com>
To: dave () farber net
Date: Tue, 22 Jun 2004 18:19:44 -0400
Subj: RE: [IP] Why Vonage is Just a Fad

Hi Dave;

Just a thought on Dwayne's post.

I hope I am not the only one chilled by the implications subtly outlined in
this piece. I would take SERIOUS exception to having my network traffic
"managed" for me to enable certain types of traffic and limit or disable
others. When I buy connectivity, that's what I want; I do not want the moral
majority deciding which hosts I can visit (or will receive "reasonable" ping
times from); Nor do I want my choice influenced by other's/corporate
motives. I remember the days back in the early 90s when I got my first DSL
line; I had a roaring pipe to EVERYTHING! Now the pipe is even bigger and
the content richer and more varied than ever - And I want access to all of
it!!

For the same reason that I prefer to peruse Blogs and read IP rather than be
spoon-fed by CNN, I hope that there is a HUGE outcry against the concept of
"packet de-prioritization."

I learned about Skype from this list; I installed it and have logged
approximately 100 hours in the last 3 months on calls to Africa, North
America and Asia from Europe. The tool is PHENOMENAL, better quality than my
internet phone (a la vonage) and free (for now anyway). The thought of
losing this tool to a "connectivity" provider's petty attempt to regain its
former monopoly glory, almost has me identifying with terrorists.

Oooh, that may have been a little strong. ;-)

Regards,

Marc Aniballi


-----Original Message-----
From: owner-ip () v2 listbox com [mailto:owner-ip () v2 listbox com] On Behalf Of
David Farber
Sent: June 22, 2004 4:44 PM
To: Ip
Subject: [IP] Why Vonage is Just a Fad



Begin forwarded message:

From: Dewayne Hendricks <dewayne () warpspeed com>
Date: June 22, 2004 12:17:08 PM EDT
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] Why Vonage is Just a Fad
Reply-To: dewayne () warpspeed com

Why Vonage is Just a Fad
By Daniel Klein, Tech Update
  May 19, 2004
<http://techupdate.zdnet.com/techupdate/stories/main/ 
Why_Vonage_Just_Fad.html?tag=tu.arch.link>

  In the bleak telecommunications sector, broadband telephony start-up  
Vonage has emerged as one of the most well-known, yet, controversial  
companies. Vonage, a provider of SIP-based broadband VoIP services,  
launched its all-you-can-eat consumer voice service in 2002. Providing  
a best-effort service with local, long distance, and enhanced calling  
features for a single price, Vonage's service has appealed to the price  
sensitive user. In a year, Vonage signed up 100,000 users, creating a  
level of angst among broadband providers, and renewing interest in  
broadband VoIP among the investment community.

  During the past 6 months, most major MSO, telcos, and IXCs have either  
launched, or began testing, their consumer VoIP strategies. These  
providers will target the mass-market with an RBOC-quality, low-priced,  
flat-rate plan. Vonage's service tends to appeal to the tech-savvy,  
risk-averse consumer, which we see as a limited market segment.

  Company Strategy and Mission
  Because Vonage operates over the Internet and does not own network  
assets, the company easily expanded its service to 125 U.S. markets.  
The start-up also launched its service in Canada in 2004, further  
expanding its service availability to a market in which broadband  
penetration remains high. Using this strategy, the start-up has been  
able to grab the low-hanging fruit customers in each market.

  Company Strengths
        .       First-mover advantage: Vonage is one of the first telephony

providers to offer an all-you-can-eat" package with significant cost  
discounts over standard RBOC services.
        .        Strong feature set and advanced functionality: As the
market  
leader, Vonage has introduced many innovative features such as a  
softphone, virtual phone numbers, click-2-talk, call hunting, and fax  
service.
        .        Exceptional marketing and advertising: Vonage has become
prominent  
thanks to a constant barrage of press releases and announcements. The  
company also initiated relationships with RadioShack and Circuit City,  
helping to create interest among technology-savvy broadband users.
  Company Challenges
        .       Lack of network ownership: Vonage uses the Internet as its
backbone  
and hence does not maintain control over the network. This can pose a  
challenge as competing service providers gain the ability to  
de-prioritize types of traffic over the last mile of their network.
        .        No quality of service: The company says it cannot offer
QoS, and  
does not plan to re-architect its network to offer it. Voice calls do  
not receive priority over data packets. As bandwidth intensive  
applications such as video become commonplace, the quality of Vonage's  
calls will suffer.
        .        Not your father's telephone company: Although consumers
crave a  
less-expensive telephony service, they still expect Bell-like service  
and installation. Vonage requires users to configure and install the  
equipment themselves, and there is currently no full-house solution.  
This limits their target market to mainly technology savvy users, or  
early adopters.
        .        Strong competition: In 2004 and 2005, all the major cable  
operators, and most of the major telcos, will provide their own VoIP  
services with local, long distance, and enhanced features at a flat  
rate. With stronger brand names, and the ability to prioritize network  
traffic, broadband network operators will quickly outpace Vonage's  
success in the market.
        .        Single-service offering: Vonage can provide a multitude of

advanced voice features, but cannot offer bundled service offerings  
with video, high-speed data, or wireless. The Yankee Group's research  
demonstrates that bundled services not only provide savings and  
convenience for consumers, but also help increase provider revenues and  
reduce churn.
  Company Predictions
  Vonage has successfully marketed itself, and its concept. The company  
has created a grand illusion in the marketplace. Most service providers  
are not only familiar with this small, privately held company, but feel  
threatened by the start-up and its approach to offering telephony  
services.

  However, we anticipate Vonage will become a victim of its own success.  
Their eventual downfall will come because the company threatens the  
RBOCs, IXCs, and MSOs. As the incumbent service providers and MSOs  
offer wide- scale residential VoIP services with QoS at the same price  
point as Vonage, the start-up will find it difficult to compete. Today,  
some RBOCs require their customers to subscribe to their telephony  
services to receive broadband. Tactics such as this, as well as the  
increased focus on the triple play and bundling discounts, will  
aggravate Vonage's problems.

  Company Recommendations
        .       Quality of service is necessary: As operators launch VoIP
services  
with QoS, it will quickly become the norm. Customers will demand their  
broadband telephony service be reliable and comparable to their PSTN  
phone service, especially as their all-you-can-eat bundles settle  
around the same price points.
        .        Change its business model: To remain competitive, Vonage
must  
change its business model and rely heavily on partnerships for its  
backbone and access networks. Offering a service without QoS is not  
sustainable in the long term, and Vonage cannot provide a better than  
best-effort service without these relationships.
  Competitive Recommendations
        .       Only launch a QoS-based offering: RBOCs, IXCs, and cable
companies  
must not sacrifice their reputations by launching a secondary line VoIP  
offering. Incumbent players that do not want to be perceived as  
broadband providers must ensure consumers understand the benefits of  
using VoIP, and recognize it does not have to be of lower quality than  
current services.
        .        De-prioritize Vonage traffic: It may seem like a dodgy
competitive  
tactic, but broadband network operators could slow down Vonage's  
service. As subscribers increase their use of latency sensitive and  
graphic-rich IP traffic, broadband providers could give network  
precedence to their own revenue-generating services. Unless Vonage pays  
fees to the network provider, there is no reason the operator should  
not make the service a lower priority on the network.

  The Yankee Group originally published this article on 6 May 2004.
Archives at: <http://Wireless.Com/Dewayne-Net>
Weblog at: <http://weblog.warpspeed.com>

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